Following the Money: United Way Jumps into Troubled China Waters

Like so many auto-parts makers and shippers, the charity organization United Way Worldwide is now following its customers to China. But the potential risk for the U.S.-based network as it teams up with government-run Chinese organizations – instead of lost profits – is reputational.

China is a market United Way couldn’t ignore, says Brian A. Gallagher, president and chief executive officer of the Virginia-based organization, which operates like a franchise, with individually run units that operate under its banner.

The 125-year-old organization says 110 companies are responsible for $1 billion raised annually by United Way – about 1/5th of the total – and that at least 50 of them have a presence in Shanghai.

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Many of these companies have global charitable-giving goals that United Way aims to help fulfill. “We have to be where they are and they’re here,” Mr. Gallagher said in an interview Friday.

Charity has a bad rap in China. An important reason why the world’s No. 2 economy isn’t a more philanthropic one, according to experts, is distrust of the government-dominated charity sector. From already nascent levels, Chinese giving plunged last year. A widely cited reason: Guo Meimei Baby, a bling-draped young woman who China’s blogosphere last year connected to the state-run Red Cross Society of China.

Though Ms. Guo and the Red Cross repeatedly denied links between her extravagant spending and the charity’s fund-raising, a reputational hit for the sector quickly turned into serious financial damage.
Chinese government figures showed a 17% drop in donations between 2010 and 2011. Shanghai’s Hurun Report, which tracks big Chinese philanthropists, says the 100 most generous tycoons likewise gave 17% less in 2011 from the previous year. That’s despite what Hurun found were some sizable individual donations and a big rise in average gifts since 2004, when it first tracked their activity.

For its first step, United Way is working to finalize terms of a tie-up with the state-run Shanghai Charity Foundation that Mr. Gallagher said would operate as a joint venture with 50-50 management and oversight, but according to western principles.

The Shanghai venture, which will focus specifically on funding education for migrant workers, is the first a handful of efforts spread over multiple cities envisaged in an agreement signed last year that tied United Way with the Chinese government’s umbrella group, the China Charity Foundation.

Brian Gallagher

Mr. Gallagher said that while it is technically feasible for a foreign charity organization to raise and disburse money without state involvement in China, “the more pragmatic approach seemed to be this one.”
The Shanghai foundation’s website showed meetings scheduled with the United Way team on Friday but no one at the organization could be reached to speak about the plan.

United Way would enter a market where foreign executives based in China sometimes grumble that corporate social responsibility is more than a responsibility – it’s a requirement of doing business in the country. In private, some executives express deep distaste for the government-run system, saying business licenses are sometimes tied to giving, that disasters generate unreasonable requests and that Chinese charities rarely provide disclosure about their spending.

Mr. Gallagher said China’s charity industry lacks transparency, and that breeds mistrust. “We haven’t been silent in our negotiation with them of their need to change,” Mr. Gallagher said, noting that reports he sees suggest that in China young people and entrepreneurs “wouldn’t risk giving money to charity.”

Mr. Gallagher insisted that accounting, transparency and governance in the jointly branded new Shanghai charity will be dictated by United Way. “Our contract states this will operate against our standards,” he said.

Still, he acknowledged that the operation will be a largely Chinese affair, with perhaps only one foreign manager and another foreign fund-raiser. The challenge is, he said, “can we create something that develops and earns a different reputation?”

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